A trading Japanese candlestick patterns on 30- or 60-minute charts in the direction of the prevailing trend allows traders to define risk and profit-taking levels based on a formation’s specific structure.

There are various candlestick patterns, consisting of either one or more candlesticks (see “Candlestick basics,” p. 36) that imply either bullish or bearish follow-through. These patterns occur relatively frequently and are easy to identify. It shows four tradable candlestick patterns that formed during a 48-hour period on a 30 minute chart.

Candlestick formations can be traded the same basic way, regardless of the time frame or specific pattern. After you go long in an uptrend upon the completion of a pattern, place a protective stop-loss order 10 pips below the low of the formation when watching a bid chart and a profit-taking limit order 10 pips below the high of a previous candle whose high is above both the two preceding candles and two succeeding candles. The rules are almost identical for a short trade in a downtrend: Place a protective stop-loss order 15 pips above the high of the formation and a profit-taking limit order 10 pips above the low of a previous candle whose low is below both the two preceding candles and two succeeding candles.